The reshoring during the emergency: a new challenge for companies

6 April 2020

What are the prospects for reshoring, an economic phenomenon that involves the return home of companies that previously had relocated their production outside national borders? We talked about it with Andrea Zanoni, Full Professor of Business Management at the University of Bologna and teacher, among the various courses, of Operations Strategy for the Executive Master in Technology and Innovation Management.

Italian companies, for some years, have been reviewing the decisions that led them to achieve a substantial share of their needs in the Far East countries, directly or by resorting to suppliers.

From the analysis of the experiences collected by a group of researchers operating in Italian universities, to which Bologna also adheres, among the most frequently used reasons to justify the rapprochement of the productions, we find the need to strengthen the positioning of its offer also affirming its origin, essential in the luxury and fashion sectors. In these sectors, in fact, “made in Italy” constitutes an element of value, alongside the need to ensure a higher quality service, not always ensured by companies located in the Far East.

Other reasons to justify back-shoring decisions are also the disappearance of the cost differentials concerning the national production, caused by the faster increase in labor costs in the areas where the productions were located, and by the growth in logistics costs – especially transport and storage – determined by distance.

Following the spread of Covid-19, the data that would emerge if the research were repeated today, most likely, would highlight that one of the most significant reasons that lead to regaining direct control of the activities is the need to mitigate the elements of risk inherent in a long and distant supply chain.

In fact, in the first few months of 2020, many companies were forced to implement a recovery plan to make up for the shortages of materials from plants located in areas which, before us, were affected by the spread of the virus and thus being able to continue to maintain the own operations. In some cases, this has been possible relatively quickly and with bearable cost increases; in others, it has determined a real crisis which can only be reabsorbed in the long term.

For some time, many companies have made tangible the greater exposure to the risk caused by off-shoring operations which, sometimes too casually, had been decided in the past by pursuing savings without assessing the dangers to which they exposed themselves. Now it is useless to complain about the past; however, the experience should serve to develop supply chain management systems that are more attentive to the long term and, above all, more resilient.

In the immediate term, it is still necessary to give a rapid and effective response and therefore all levels of the operating chain must be activated. Starting from the end customer and from the distribution channel, the sales forecasts must be reviewed to identify as precisely as possible the priorities and needs to plan any sales rebalancing actions together with the dealers.

At the other extreme, with suppliers, it is appropriate to analyze the available production capacities and activate research to identify new sources, possibly in areas less affected by the emergency, capable of integrating coverage of needs. The flow of materials must then be made transparent to bring out the accidental stocks that are usually accumulating as protective buffers between the various stages, both internal and external, of the supply chain.

Finally, during the emergency, it may be appropriate to temporarily use materials and components originally intended for post-sale, to be able to continue the production activity, except to replenish stocks as soon as possible to ensure normal management safety.

Author: Andrea Zanoni


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